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The more I puzzle through the various arguments that Thomas Piketty is making in his book, Capital in the 21 st Century, the more puzzled I become by certain of his underlying assumptions. This problem here today is that he's assuming a very low rate of economic growth out into the future. It is that low rate of growth which produces his equation r > g, and thus the continual capital accumulation that he insists will lead to political instability as a result of wealth inequality. And the problem with assuming such a low rate of growth out into the future is that all of the other assumptions we're making about the future depend on a continuation of the robust economic growth we've been having over the past century or so.

It's worth noting that Piketty isn't talking about the rate of growth in the current, advanced, economies. It's entirely possible that the UK or US growth rate over the next century or so will be 2 or 3% in real terms. Indeed, that's pretty much what we expect them to be absent any massive technological revolution. We are, after all, at the technological leading edge, exactly where it is difficult to increase output through increases in productivity. An increase in productivity being the same thing as a technological change of course.

No, what Piketty is talking about is the rate of growth of global GDP. And that's a very different thing for the vast majority of people in the world live in places that are nowhere near that technological boundary. And we also rather assume that catch up growth is easier and takes place more quickly than having to invent all the new things for yourself does. So we tend to assume that global GDP growth is going to be significantly faster than rich country growth. Leading, we hope at least, to reduced poverty and reduced income inequality around the world.

As you can see he's assuming that later this century the global growth rate will fall back to near 1%. He does provide reasons as to why he thinks this will happen but it's very much at odds with what everyone else professes to believe about future growth rates. To get to those sort of global growth rates we either have to assume that the developed world will carry on at our assumed trend rate of 2 or 3%, but the developing countries, well, they don't develop. Or, alternatively, if we still believe that the developing countries will develop then we also have to assume that the developed world won't grow at all. And that would mean that our various pension and social security arrangements (not to say most governments) would then go bust at which point we might be worrying about other things than wealth inequality.

More than this though it's entirely at odds with the one serious piece of crystal ball gazing we've tried to do about that economic future. I refer, of course, to the studies of climate change conducted by the IPCC. You can see those economic models here, at the SRES. And the thing is, all of those models assume a much faster growth rate than Piketty. The global economy will grow between 5 and 9 times in the 21 st century. That's not consistent with the global growth rate falling to something just above 1% (at a 1% growth rate it would take 70 years for the global economy to double). And we are repeatedly told that the IPCC is the scientific consensus on the future of our world so we'd do well to take their economic predictions seriously.

So I'm generally unconvinced by this part of Piketty's argument. And finally it's worth noting one more thing. If growth rates are as low as Piketty is arguing they will be then climate change itself becomes very much less of a problem. For if growth is as low as that then emissions will be much lower than the IPCC is currently assuming they will be. And who, really, these days wants to try and make the argument that we don't have to worry about climate change?